Opinion

The perils of Mary Jo

Mary Jo White was a very good prosecutor — but she’s still totally unqualified to run the Securities and Exchange Commission, because the challenges facing the agency go way beyond charging a few fat cats for fraud.

White’s problem is that she’s not a regulator.

Yes, the SEC was created in the aftermath of the 1929 stock market crash to serve as “Wall Street’s Top Cop” — enforcing the nation’s securities laws to make the markets safe for investors.

But effective policing involves a lot more than just busting the bad guys — it means regulating behavior to prevent bad stuff from happening in the first place.

The SEC’s job is to keep the markets fair and also functioning; that includes setting standards of conduct and making sure they’re followed. Bringing cases against alleged bad guys is an important part of the job, but only part.

But President Obama obviously doesn’t care. He sees business as an effective second-term target for his ongoing class-warfare agenda. He’s not worried about getting the economy moving, or healing our still-massive unemployment. He wants some scalps — and what better way to get them than with someone who’s made a career out of catching bad guys?

But it takes more than a sheriff to run the SEC. The whole country got burned by the 2008 financial crisis, and while I’m sure there was some fraud involved, that’s not the big reason the banks loaded up on toxic assets. No, it had a lot more to do with irrational exuberance about real-estate values, which went totally undetected by the SEC’s accountants.

Maybe some bad guys are behind the continuing string of market malfunctions, such as the 2010 flash crash or last year’s disastrously botched Facebook IPO, but I doubt it. Investors got screwed on both occasions because the SEC in recent years hasn’t made it a priority to ensure that the markets are functioning properly.

And of course the agency’s most infamous failure of recent years was Bernie Madoff; it ignored his Ponzi scheme despite repeated warnings. It wouldn’t have taken Eliot Ness to figure out what was going on, just a simple examiner looking under the proverbial hood to see if Madoff was actually investing his clients’ money, or simply stealing it.

Will White be different? Nothing in her background suggests that she knows anything other than law enforcement. So she’s plenty qualified to take over for hapless Eric Holder and run the Justice Department, but not the SEC.

To be fair, she’s got all-around competence — unlike some of the president’s other second-term picks, such as political hack Jack Lew for Treasury.

White actually has real experience doing stuff, most notably as Bill Clinton’s US attorney for the Southern District of New York. Running the Justice Department’s premier crime-fighting unit, she busted mobsters, terrorists and, yes, an occasional fat cat.

Some observers are crying foul because she then went into private practice, where she’s defended banks, some of the same players she would now (presumably) be trying to bust. (She also had NewsCorp, the parent company of this newspaper, on her client roster.) But such conflicts come into play whenever someone from the private sector joins government. The alternative is keeping anyone with real experience out of public service, and leaving the taxpayers with the likes of Jack Lew.

Moreover, it’s hard to believe White is just going to go soft on Wall Street just because she got paid a few bucks by Jamie Dimon to defend JP Morgan; the opposite is more likely — which is why she shouldn’t be in this job.

Does the SEC really need to bring more cases against Wall Street? Based on the raw data, SEC enforcement cases are up at record levels, largely the result of increased attention to insider trading. People attribute that to outgoing Chairwoman Mary Schapiro and her enforcement chief, Robert Khuzami (who was an assistant Manhattan US attorney under White), both appointed by Obama after the financial crisis and the Madoff fumble.

But for all the hoopla about insider trading, it had nothing to do with the financial crisis. Anyway, it’s really a victimless crime: People without the inside information will lose money anyway, even if someone on the other end of the trade is cheating or not.

Ponzi schemes, flash crashes and market malfunctions have lots of victims, people losing real money. And preventing them requires policing, not prosecutions — which is why Mary Jo White should stay in private practice defending the fat cats, rather than taking them down.

Charles Gasparino is a Fox Business Network senior correspondent.